1 Entrepreneurship in Regulated Markets: Framing Contests and Collective Action to Introduce Pay TV in the U.S. Kerem Gurses Luiss University Viale Romania 32 00197, Roma, Italy e-mail: [email protected] telephone: (+39) 06 852251 Pinar Ozcan Warwick Business School Scarman Road, Coventry CV47AL UK e-mail: [email protected] telephone: (+44) 79 20 40 79 30 Pre-edit version. Published at the Academy of Management Journal in 2015. Keywords: Entrepreneurship, institutions, regulation, framing contests, collective action 1 Entrepreneurship in Regulated Markets: Framing Contests and Collective Action to Introduce Pay TV in the US ABSTRACT In their endeavor to establish new products and services, entrepreneurs can face strong resistance from market incumbents whose resources and market position they threaten. This paper looks at the battles between entrepreneurs and market incumbents in a regulated market where various institutional actors (e.g. regulators, courts) have the power to protect the incumbents by hindering the entrepreneurs. Our comparison of one failed and one successful attempt to introduce pay TV in the US reveals how entrepreneurs can first enter a regulated market without facing resistance, and then introduce a new frame to legitimize their product/service despite growing resistance from incumbents. Our framework highlights framing as a strategy and framing contests as a mechanism through which entrepreneurs and incumbents can battle to enable/disable institutional change. As part of this process, we also uncover how entrepreneurs evolve from self-serving actors with no field-level intentions to powerful groups that create a ripple effect in their environment by moving their target of influence from private to institutional actors. Our work constitutes a step towards a more “realistic” tale of institutional change. 1 Entrepreneurship in Regulated Markets: Framing Contests and Collective Action to Introduce Pay TV in the US Entrepreneurship has long been viewed as an engine that drives innovation and promotes economic development (Reynolds, 1997; Schumpeter, 1934). However, this engine can slow down significantly due to resistance from various market players and institutions whose resources and position entrepreneurs threaten while establishing their products and services (Aldrich and Baker, 2001; Pache and Santos, 2010; Pacheco et al., 2010; Sine and Lee, 2009). Studies show that a major source of resistance against entrepreneurs comes from market incumbents (Aldrich and Baker, 2001; Lawrence, 1999). Market incumbents are known to attack entrepreneurs directly by introducing new products as well as indirectly by maintaining strong connections to key institutions that can impose restrictions on the entrepreneurs (Aldrich and Baker, 2001). Incumbent resistance can be particularly strong in regulated markets where various institutional actors (e.g. regulators, courts) have the power to protect the incumbents against market entrants through laws and regulations (Edelman and Suchman, 1997; Russo, 2001). But how can incumbents convince these actors to hinder entrepreneurs with innovative products or services? In turn, how can the entrepreneurs establish their products and services despite this resistance? Answering these questions is critical for our knowledge of firm strategy as well as the adoption of innovation in societies. In this study, we explore this topic through the research question, how do entrepreneurs and incumbents advance/protect their interests and shape a regulated market in their favor? Our study addresses earlier calls (e.g. Haveman et al, 2012; Zahra, 2007) to emphasize the dynamics of the research context in process-based studies. Our context is the development processes of two distinct attempts to introduce the pay TV service within the strictly regulated industry of broadcasting between 1949 and 1985 in the United States. Comparing and contrasting these two attempts to introduce pay TV, ‘over the air pay TV’ and ‘pay cable TV’, we observe that despite 2 a familiar technology1, a lower installation cost, and resourceful advocates, ‘over the air pay TV’ was deterred by regulators while ‘pay cable TV’ thrived. The framework that emerged from our findings explains how entrepreneurs can first enter a regulated market without resistance, and then introduce a new frame around their product/service in order to legitimize it despite growing resistance from powerful incumbents. In the process, they first address various interest groups that can benefit from their product/service and then generalize their frame to one of public interest. Once public support is achieved, they lobby various institutional actors to put pressure on the regulators to rule in their favor. We identify that each objective within this process is supported with a framing strategy and various forms of collective action in order to influence the target. As part of this process, we also uncover how entrepreneurs become more strategic in their actions over time as they gradually turn into institutional entrepreneurs by slowly changing the way the industry is regulated. Our findings make various contributions to literature. First, we emphasize that framing is an important strategic tool during market entry. As described above, entrepreneurs typically face a strong coalition between incumbents and institutions upon entry into established and especially regulated markets (Aldrich and Baker, 2001; Russo, 2001). We observe that entrepreneurs can avoid resistance from this strong coalition by aligning their product/service with the interests of the incumbents and the dominant frame of the regulators. This strategy is effective because it creates an initial positive opinion with the regulators, which would take the incumbents time and effort to change, thus creating a window of opportunity for entrepreneurs to grow. Second, our findings illustrate how, in their attempt to legitimize their service, cable operators entered a framing contest with the incumbents; how this framing contest divided the institutional actors, and how cable operators then invited the opposing institutions to switch sides 1The technology for the Over the air pay TV service was a small modification of the broadcasting technology already in use for public television. A broadcast channel would transmit a scrambled signal over the air and a decoder would unscramble it at the subscriber’s home. Cable TV, on the other hand, used wires to distribute over the air signals from community antennas to households in remote locations. See Pages 17 and 23 for further details. 3 in order to reduce the industry turmoil. Prior studies document the existence of framing contests as a central mechanism leading to the creation and change of institutions (Kaplan, 2008; Ryan, 1991; Schneiberg & Soule, 2005, Guerard et al., 2013). However, they are not informative on how framing contests occur and how the frames of different parties evolve over time. Our findings constitute a potentially important step in documenting the role of not only the entrepreneurs, but also the incumbents and various institutions in the emergence and development of framing contests. In addition, we emphasize that during the regulation of new technologies, public interest is at the core of the framing contests. In this process, incumbents can attempt to influence regulators by framing the new technology against the public interest. This strategy is effective as it engages the raison d’etre of the regulatory agency, i.e. preserving the public interest (Pigou, 1932), leaving the market entrants with no choice but introducing an alternative frame of public interest around their technology. We posit that in this process, an indirect approach to the regulators, using collective action to create a ripple effect in the public and institutional spheres, may be more effective than petitioning them directly. Finally, our study follows earlier empirical attempts (e.g. Hargadon and Douglas, 2001; Pacheco et al, 2010; Phillips & Tracey, 2007, Tracey et al, 2011) to establish a link between entrepreneurship and institutional entrepreneurship by documenting the evolution of entrepreneurs from being self-serving and improvising, with no field-level intentions to becoming central actors with strategic actions targeted at changing their institutional environment (Levy and Scully, 2007, Pacheco et al, 2010). In the process, we contribute to establishing a more “realistic” image of institutional entrepreneurship (Aldrich and Fiol 1994; Aldrich, 2011), where institutional change is fuelled by entrepreneurs acting collectively to convince private and institutional actors to cooperate in order to benefit from the change while battling resistors of change, e.g. incumbents, through framing contests. In the rest of the paper, we first lay out the 4 theoretical background on our research question, then discuss the findings, their generalizability and contributions to literature and, finally provide concluding remarks. THEORETICAL BACKGROUND Entrepreneurship is defined as the process of discovering, evaluating, and exploiting opportunities to create future goods and services (Shane and Venkatamaran, 2000). Studies show that environmental conditions can make a significant difference in the availability of opportunities for entrepreneurs and their ability to exploit them (Aldrich, 1999, Baumol, 1996). A growing stream of research examines entrepreneurship in nascent markets where entrepreneurs struggle to gain legitimacy amidst high ambiguity (Aldrich